As a business owner thinking about closing a limited company, it’s completely expected that you’d want to look for the cheapest option. After all, your company may already be struggling financially. In this blog, we’re looking into the cheapest way to close a limited company.
Why might someone close a company down?
There are many reasons why a limited company director might choose to close their company. Here are just a few of the reasons why.
- Deciding to take a different direction or start a new company
- Struggling financially that running the company is no longer viable (insolvent company)
- Retirement
When a company is closed professionally, it is also removed from the Companies House register, which means it will no longer exist. If wrongdoing is found in the company’s affairs, the company could end up being reinstated for a number of years, depending on how it was closed.
Cheapest way to close a limited company
If you want to know the cheapest way to close a company, then keep on reading. We will let you know how you can close a limited company for just £10. Bear in mind that there are some criteria that must be met before you can successfully complete company dissolution.
When using a strike-off method, there is no requirement for a licensed insolvency practitioner, which helps to make the process much more affordable. As the company director utilising this method, you will be leading the process for company closure.
If you’re unsure whether this method is for you, you must seek professional advice regarding your circumstances. If you use this method without seeking advice, you may be held personally liable for some or all of the company’s debts by an insolvency practitioner. If you cannot use a company dissolution, you must use a formal insolvency procedure for your limited company closure.
How to close a limited company through a strike-off method
The cheapest way to close a limited company is by filling out and submitting a DS01 form at Companies House. When dissolving a company, certain conditions must be met, and you must not have significant debts.
Using this method to close a limited company will result in the company being taken off the register. However, it must be done correctly, or your company may be reinstated, and you could end up being personally liable for company debts.
Requirements to close a limited company:
- The company must not have traded three months before the voluntary dissolution.
- The company must have no cash or valuable assets upon beginning the closure process.
- If the company has creditors, they must have been informed, and the director must request their permission to dissolve the company.
- The company’s creditors are given three months to object to the company strike-off. If they don’t, the company gets dissolved.
- The company’s directors have not tried to move assets such as property, plant, and machinery out of the company.
Here is a typical example:
James’ limited company owes HMRC £8k in corporation tax. He has no way to pay it back, and the company has no assets. He’s not traded for three months and is worried about HMRC turning up at his door. He files a DS01 form to Companies House and sends a copy of the DS01 form to HMRC. He also sends a cover letter informing them that the company has no assets or cash and inviting them to liquidate the company if they wish. At this level, it’s likely that HMRC will not respond within three months, and the company will be struck off the Companies House register. The debt to HMRC will dissolve as the company no longer exists.
What are the disadvantages of using a strike-off method?
- The companies that you owe money to may object
- The company could be reinstated for up to 20 years
- This process is open to abuse. If the process is completed incorrectly, your company could be reinstated, and you could be made
- personally liable for the company’s debts
- It’s highly unlikely that you will be able to dissolve a company and not pay your bounce-back loan
How else can you close a limited company?
Creditors’ voluntary liquidation: This method is for an insolvent company that wishes to close down. As the name suggests, the directors will make the decision voluntarily.
Members’ voluntary liquidation: This method can be used by a solvent company when it has enough money and reliable cash flow to pay creditors over a certain period of time. It is the most tax-efficient way to close a limited company.
Compulsory liquidation: This type of liquidation is forced upon company directors by their creditors. It will be used by an insolvent company. This method is instigated using a winding-up petition. The petitioning creditor must have tried and failed multiple times to retrieve the money owed by your company.
What happens when a company enters liquidation?
There are many steps involved with closing a limited company, but they will depend on the specific circumstances of the liquidation process. In a creditors’ voluntary liquidation, the director will have much more control over the processes than in a compulsory liquidation.
When a limited company is insolvent, it will likely have creditors who are owed money. The insolvency practitioner’s job is to find ways to pay creditors the money they are owed (outstanding debts). One way that this may be achieved is through the sale of company assets. The company’s assets may include stock, machinery, or even money left in the bank.
Is liquidation a cost-effective closure method?
If you cannot use the strike-off process, you have to use a formal liquidation process, such as those mentioned above. Insolvent companies can expect to pay around £4000 + VAT for a small liquidation. This is provided that no personal liability is involved in the process. These are the professional fees that you should only pay licensed insolvency practitioners.
If you choose to dissolve a company, you will not be able to claim director redundancy. The average claim for directors is £9,000, so it’s crucial that you consider this before making a decision. Some company directors find that they can use this redundancy payment to pay for the liquidation.
If you’re still wondering how to close your limited company, we are here to help. Please don’t hesitate to contact us if you have any questions at all.
Justin Barker
I’m Justin Barker, the Managing Director at 1st Business Rescue. I have over 25 years of experience providing insolvency advice to business owners.
I understand how challenging it can be when dealing with financial difficulties within your business. It’s easy to ignore the problem and hope that it disappears, but this is often the worst thing you can do. Our dedicated team is here to provide honest, valuable advice to help UK directors deal with their personal situations in the most appropriate way.
No case or circumstance is the same, but I can guarantee that I am there to give you the best advice.
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